The first objective of this note is to outline the concept of postponement and its applicability to supply chain management. In outlining the concept of postponement, we will show that this concept works best under specific demand, product, and production preconditions. We will further explore the impact of postponement on company strategy, capabilities,processes, resources and infrastructure. Also, we will outline the type of cost - benefit trade offs involved.
Second, this note will illustrate the postponement concept through a set of examples. In illustrating the functioning of the postponement concept, we will use five examples from a variety of industries. The companies in these examples used different approaches to make postponement workfor them. The first three examples show companies who managed favorably the trade offs between the costs and benefits of postponement. These examples include Hewlett Packard, who reconfigured its infrastructure to delay the point in the supply chain where products became differentiated to be able to better match supply with regional demand; Motorola, who redesigned its production process bydelaying the point in which the most expensive module of the product was made part of the customized product; and a Large Chemical company, which changed the customer-supplier relationship to enable the full benefits of the concept to happen. Then we will show through the example of a large consumer electronics company how the trade off between the costs and benefits of the postponement conceptcan be negative when the benefits to the customers do not exceed increased product cost. In the end, we will examine an example of a company where the outcome of the postponement concept introduction is still unclear.
Overview of Postponement
The concept of postponement lies in organizing the production and distribution of products in such a way that the customization of these products ismade as close to the point when the demand is known as possible. Postponement belongs to a set of levers used in inventory management to attack the variability of demand and supply. This set of levers can be divided into proactive and reactive. Proactive levers directly attack the causes of variability, reactive levers help to cope with its consequences. Together with substitution,specialization, and centralization, postponement is a reactive lever (see Exhibit 1).
Optimal Postponement Preconditions
Implementation of postponement works best under certain demand, product and production preconditions.
|Fluctuation (e.g. seasonal hikes in demand for ski equipment) |
|Unpredictability (e.g.demand for high tech products with a short product life) |
|Urgency - operating on short required order lead times relative to the production cycle (e.g. Benetton would not be able to run|
|its full regular production cycle after finding out which sweater colors sell best in the season) |
|Differentiation - associatedwith distinct customer segments that require the company to provide a product line in which the |
|products have different performance characteristics (e.g. different performance, technological or legal requirements on the |
|same product in different countries) |
|Negative correlation for the productsin the product line (e.g. success of one line of printers can have an adverse impact on |
|the demand for the remaining lines of printers) |
Product/product line preconditions:
|High product value - products with high unit value have high inventory holding cost and high cost of oversupply. The |...